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OPEC Is Not in the House

On Tuesday, the House of Representatives passed a bill on a vote of 345-72 that would allow the federal government to sue OPEC for violations of America’s anti-trust laws. Not to put too fine a point on it, but the “No Oil Producing and Exporting Cartels Act of 2007” (NOPEC) is probably the most ridiculous piece of legislation ever hammered through Congress. That serious people entertain this idea is a remarkable demonstration of the fact that, once the topic of conversation turns to oil, the human brain spontaneously short-circuits, nodal synapses fire randomly, and I.Q. points bleed out of the cranium and all over the kitchen floor.

First, the obvious question arises — exactly how would the United States government enforce such a law? After all, we rather doubt that Saudi Arabia, Kuwait, Iran, Venezuela, et al. will disband the cartel in a panic once Uncle Sam were to outlaw their club. “You and who’s army?!” is the natural response we might expect. Given that no army would be on the way, that leaves trade sanctions or nothing. The former, however, would be economically and politically counterproductive while the latter would be an embarrassing admission that U.S. law isn’t worth the paper it’s written on.

Of course, NOPEC might conceivably be enforced when opportunity arose. For instance, the day after it became law, Gen. David Petraeus could kick in the door of the presidential compound housing Iraqi president Nouri al Maliki and have him summarily tried and imprisoned for his nation’s involvement in the OPEC criminal conspiracy … unless, of course, he agrees to meet those famous Iraqi political “benchmarks” that are all the rage in Washington. Or the next time Saudi King Abdullah visits the president at his famous Crawford ranch for a conversation about al Qaeda’s threat to the region and the civil war in Iraq, the Texas Rangers could ambush the head of this nefarious 12 nation conspiracy and spirit him off to Guantanamo for questioning. But alas, for obvious reasons, even selective enforcement is unlikely.

Second, what exactly gives the Congress the right to impose its economic regulations on state-owned companies that, for the most part, aren’t doing business in the United States? Do all national governments have this right, or only the United States? If the former, what’s to prevent Saudi Arabia from declaring it illegal for U.S. banks to charge interest on loans — an activity ostensibly banned in many Islamic countries? If the latter, then it’s a naked statement that U.S. policy is premised upon the idea that the biggest guy on the playground makes the rules for everyone else whether they like it or not. That is, might makes right. But if so, wouldn’t those forced against their will to live under U.S. law rightly argue that subjects of governmental power ought to have a right to vote about the laws they are compelled to live under? Or is that a right that only applies for some and not others?

Finally, there’s an economic principle of real importance at stake. To wit, who should have the final say over how much of a product or service is delivered by a commercial enterprise; the owners or the customers? If the latter, then companies are merely slaves of the state, dictated to produce as much as the public wants regardless of business considerations.

Now, one might argue that the state can prohibit price fixing and collusion without prohibiting companies from having the final say over their own production schedules absent coordination between firms. But what if OPEC countries preferred to constrain production so that sufficient reserves would be available down the road when they would presumably be more valuable? In that case, production restraint might simply be another form of national savings. Should the U.S. Congress be in the business of declaring such trade-offs between present and future revenues “illegal”?

Even if, by some miracle, the “audacity of hope” that is NOPEC were to actually shut down the cartel, it might not make any difference. A number of oil economists such as A. F. Alhajji, maintain that OPEC is not really a cartel at all. OPEC, they say, is simply a vehicle through which Saudi Arabia unilaterally exercises power over the market—and that collusion within OPEC is not particularly meaningful. We don’t really know for sure how much of an effect the Cartel has on oil production and thus oil prices because we can’t be sure what oil production would look like absent OPEC. If you troll through the economics literature to find proof that the Cartel is increasing world crude oil prices, you’ll find surprisingly little hard evidence for that proposition.

Don’t get us wrong. It would be wonderful thing if private companies owned oil reserves, not national governments. And it would be nice from the consumers’ point of view if those companies produced as many barrels of crude as a normal profit would allow. We would have no complaint if OPEC disappeared tomorrow. But Congress’s ability to translate wish into reality as far as foreign petroleum operations are concerned is zero absent some serious military muscle.

The best we can do is to refuse to help OPEC or its member states in any way, shape, or form as long as they are engaged in price fixing or collusion. Of course, we’re not prepared to do that given our need for Saudi help in bringing al Qaeda to ground and to moderate Islamic political extremism in the Middle East. Hence, NOPEC is no more than a futile gesture desperately embraced by politicians who want to be able to tell the voters back home that they are “doing something” about high gasoline prices.